Wednesday Watch

Evening Headlines

Bloomberg:

• China Is Taking on the ‘Original Sin’ of Its Mountain of Debt. China’s much-vaunted campaign to tackle its leverage problem has captured headlines this year. But to understand why they’re taking on the challenge -- and the threat it could pose to the world’s second-largest economy -- you need to dig into the mountain. Characterized in state media as the “original sin” of China’s financial system, leverage has swelled over the past decade -- partly because policy makers were trying to cushion a slowdown in growth from the old normal of 10 percent plus. What’s fueled the leverage has been a rapid expansion in household and corporate wealth looking for higher returns in a system where bank interest rates have been held down. The unprecedented stimulus unleashed since 2008 effectively brought to life the “monster” China’s leadership is now trying to tackle, says Andrew Collier, managing director of Orient Capital Research Ltd. in Hong Kong and author of “Shadow Banking and the Rise of Capitalism in China.”

• What European CFOs Are Saying About the Threat of a Strong Euro.

• Stocks Fall on Trump Threat as Haven Assets Climb. Volatility gauges from the U.S. to Japan rose after Trump said further threats from the country would be met with “fire and fury.” His comments followed a report in the Washington Post, citing a Defense Intelligence Agency analysis, that Pyongyang successfully developed a miniaturized nuclear warhead that could fit onto its missiles. North Korea said it’s examining an operational plan for firing a ballistic missile toward Guam. Crude dipped below $49 a barrel. Japan’s Topix index fell 0.4 percent and South Korea’s Kospi index slipped 0.6 percent. Australia’s S&P/ASX 200 Index was little changed.

• U.S. Shrimp Imports Jump to Record as Asian Supply Swells.

• Five Things You Need to Know to Start Your Day.

• Risk Premiums on Subprime Auto Debt Are Sinking Near Record Lows. Subprime auto loans may be suffering from higher delinquencies, but investors are still clamoring for bonds backed by the debt, according to Wells Fargo analysts.

Wall Street Journal:

• Who Ultimately Pays for Corporate Taxes? The Answer May Color the Republican Overhaul. Investors and workers bear tax burdens, but the politics of tax-code changes hinge on which group carries the heavier load.

• In a Job Market This Good, Who Needs to Work in the Gig Economy? Startups like Uber and Lyft that launched in the Great Recession strain to keep workers who don’t have to take part-time work anymore.

• Amid Trump’s Immigration Crackdown, More Mexicans Get Visas to Work in U.S. Demand in America is surging for Mexican farmhands, landscapers, hotel housekeepers and other temporary workers.

• It Was a Great Year for America’s Pensions, but Many Are Still in Crisis. Large public pensions are facing a funding shortfall of as much as $4 trillion because their liabilities are so large.

• Google’s(GOOGL) Diversity Problems. Progressive cultural taboos have migrated from campus to business.

MarketWatch.com:

• Uber to end car-leasing business in U.S. after massive losses.

• Priceline(PCLN) shares plunge 6% on second-quarter results.

Fox News:

• Trump has sent messages 'back and forth' with Mueller, attorney says. (video)

• North Korea considering firing missile at Guam, per state media. (video)

CNBC:

• Disney(DIS) says ESPN contributed to 23% drop in cable operating income. (video)

• Disney(DIS) will pull its movies from Netflix and start its own streaming services. (video)

• The chart that is making one trader bet on Apple again. (video)

• Tesla reportedly seeing strong demand for its junk-rated debt. (video)

Zero Hedge:

• North Korea Responds To Trump Threat, Says It Is "Seriously Considering" Pre-Emptive Nuclear Strike On Guam.

• Trump Threatens North Korea With "Fire And Fury Like The World Has Never Seen Before".

• "I Have A Right To Express My Concerns": Fired Google Engineer Will Pursue Legal Action; Assange Offers Job.

• Fed Abandons "Yellen's Favorite" Labor Market Conditions Index (Because It Just Won't Fit The Narrative?)

• US Companies Are More Indebted, More Leveraged, Less Profitable, And More Richly Valued Than Ever.

• WTI Algos Confused On Crude Draw And Surprise Gasoline Inventory Build.

• US "Confirms" N.Korea Has ICBM-Ready Nuclear Warheads.

• The Streak Is Over - Dow Closes Lower As Early Euphoria Fades Amid "Fire & Fury". (graph)

Business Insider: 

• The firm behind one of the top China analysts in the world is warning of a ticking time bomb.

• Doctors who attend lower-tier medical schools prescribe far more opioids, according to a new study.

Night Trading 

• Asian equity indices are -.50% to +.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 80.25 +.5 basis point. 

• Asia Pacific Sovereign CDS Index 19.25 +.5 basis point.

• Bloomberg Emerging Markets Currency Index 73.70 -.05%.

• S&P 500 futures -.33%.

• NASDAQ 100 futures -.45%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (MYL)/1.16

• (ODP)/.08

• (SINA)/.62

• (SSYS)/.08

• (WB)/.36

• (WEN)/.13

• (WWW)/.29

• (AGU)/4.03

• (CBI)/.91

• (JACK)/1.05

• (NTES)/4.02

Economic Releases 
8:30 am EST

• Preliminary 2Q Non-Farm Productivity is estimated to rise +.7% versus unch. in 1Q.

• Preliminary 2Q Unit Labor Costs are estimated to rise +1.1% versus a +2.2% gain in 1Q.

10:00 am EST

• Wholesale Trade Sales MoM for June is estimated unch. versus a -.5% decline in May.

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory decline of -2,373,450 barrels versus a -1,527,000 barrel decline the prior week. Gasoline supplies are estimated to fall by -1,563,820 barrels versus a -2,517,000 barrel decline the prior week. Distillate supplies are estimated to fall by -837,000 barrels versus a -150,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to fall by -.31% versus a +1.1% gain prior. 
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Evans speaking, Japan GDP report, China CPI report, $23B 10Y T-Note auction, weekly MBA Mortgage Applications report and the Canaccord Growth Conference could also impact trading today.

BOTTOM LINE:  Asian indices are mostly lower, weighed down by industrial and technology shares in the region. I expect US stocks to open modestly lower and maintain losses into the afternoon.  The Portfolio is 75% net long heading into the day.